Edible oil imports are henceforth entitled to zero percent tariff, which move is aimed at reducing prices in the domestic market, according to Ali Qasemi, an advisor to the agriculture minister.
“The global markets were hard hit over the past few months, following the conflict between Ukraine and Russia. The government abolished subsidized imports. As a result, vegetable oil saw a sharp rise in prices. The government has decided to scrap import tariffs on the product to make it more affordable for consumers,” he was quoted as saying by Fars News Agency.
Qasemi noted that although the Agriculture Ministry has been planning for self-sufficiency in oilseed production for more than 20 years, 90% of the domestic demand for vegetable oil are currently met through imports.
Skyrocketing Prices
According to the Statistical Center of Iran, the retail prices of vegetable oil increased by 314.6% in the fifth month of the current Iranian year (July 23-Aug. 22) compared with the same month of the previous year, registering the highest year-on-year price rise among the 53 food products reviewed by e SCI on a monthly basis.
The second biggest year-on-year price rise was registered for hydrogenated oil with 288.3%.
The Consumer Price Index of “food and beverages” stood at 790.9 in the fifth month of the current Iranian year (July 23-Aug. 22) to register a staggering 81.2% year-on-year rise.
The group’s annualized and monthly inflation rates reached 57.4% and 1.4% respectively.
The rise in the prices of goods and services accelerated at an unprecedented pace after the government decided to overhaul the import subsidy system.
The government move saw the abolition of the controversial practice of allocating cheap dollars at the rate of 42,000 rials per dollar, locally known as the Preferential Foreign Currency, to import essential goods, including corn, soymeal, unprocessed oil, oilseeds and barley, in addition to wheat, flour and medicine.
The market value of the dollar is around 300,000 rials now.
“Until now, we have been paying to producers [read importers] but now the subsidies go to consumers. In fact, the Preferential Foreign Currency has not been ceased, rather the allocation method has changed,” President Ebrahim Raisi said in a televised speech on the eve of the introduction of the move in May.
In his speech, Raisi emphasized that the removal of cheap dollar allocation will not lead to a price rise in wheat, flour and medicine. However, the move has led to dramatic rise in the prices of essential goods. In fact, the prices of all commodities and services have also risen suddenly in a ripple effect.
Also known as necessity or basic goods, essential goods are products consumers will buy, regardless of changes in income levels.
Cropping Pattern
Import tariffs will remain zero until local production improves with the implementation of cropping patterns.
Cropping patterns will be considered on close to 60% of Iran’s farms in the current Iranian year (started March 21), deputy agriculture minister, Alireza Mohajer, said recently.
“We have around 12 million hectares of farmlands across the country and plans are to cultivate 15 agricultural products based on cropping pattern on nearly 60% of the total land area. The success of cropping pattern cannot implementation does not depend on the agriculture ministry alone. Farmers are the owners of land and many responsible bodies have to provide facilities for them including subsidized fertilizers, good seeds and cheap banking facilities, to name a few,” he was quoted as saying by IRNA.
Mohajer noted that the ministries of industries, energy and economy, as well as the Central Bank of Iran and the Management and Planning Organization of Iran need to get involved in cultivation based on cropping patterns to guarantee its success.
Cropping pattern refers to the proportion of land under cultivation of different crops at different points of time. This indicates the time and arrangement of crops in a particular land area.
According to deputy Agriculture Minister Mohammad Qorbani, the project is aimed at increasing production of grains and decreasing cultivation of water-intensive crops.
Domestic Production Meets Only 10% of Demand
Only around 150,000 tons of the annual domestic demand for refined edible oil is produced locally, as more than 1.5 million tons are supplied via imports, according to the Government Trading Corporation.
Over 183,000 hectares go under colza cultivation every year, from which close to 295,000 tons of the oilseed are produced, Mehr News Agency reported.
Golestan in the north of the country with 51,000 hectares under cultivation and annual yields of around 80,000 tons, tops the list of provinces where colza is produced, followed by Khuzestan Province in the south with 45,500 hectares of farmland producing around 76,000 tons of the oilseed.
Other main producers of oilseed in Iran are the provinces of Fars, North Khorasan, Ardebil, Mazandaran, Sistan-Baluchestan, Kerman, West Azarbaijan, Semnan and Isfahan.
Per capita vegetable oil consumption in Iran is about 18-19 kilograms a year while the global average is 12 kilograms.
Iran’s Agriculture Ministry set a roadmap in late 2015 to achieve 70% self-sufficiency in the production of oilseeds over a 10-year period to keep the costly imports of oilseeds and vegetable oil in check. At the time, domestic production met 6% of the annual demand. Last year, around 6 years after the plan was first implemented, the figure reached 16%.
Also stipulated in the 10-year plan is that land under oilseed cultivation should reach 700,000 hectares by the end of the plan (fiscal 2025-26). This is while today according to GTC, the figure is a bit shy of 300,000 hectares meaning the government has less than three years to convince farmers to cultivation these products on 400,000 hectares of their farms.
Experts believe the increase in production costs, decline in precipitation levels, low purchase prices set by the government and the rise in global prices to be among the reasons the government plan has failed.
“Compared with other crops, oilseed guaranteed prices [set by the government] have always been low. This is the main reason farmers have shown little interest in cultivating such crops. This year, the parliament ratified to set up a Pricing Committee to take over the responsibility of setting prices for different types of oilseeds instead of the government. This committee is made up of state and private sector officials and has agreed on higher prices for the next crop year,” said Qasem Pishehvar, the head of Agriculture and Natural Resources Guild Organization.
GTC, affiliated with the Agriculture Ministry, is in charge of ensuring an adequate supply of essential goods, including wheat, rice and cooking oil, to the local market.
